Edison unit sells two U.K. plants

Enron sells utility unit for $1.9 billion

IRVINE, Calif. (CBS.MW) - Edison Mission Energy announced the sale Monday of two of its coal-fired plants in the United Kingdom to American Electric Power for $960 million.

As a result of the transaction, which is expected to close by the end of the year, Edison International's
EIX, +0.37%
Edison Mission Energy sees a one-time, after-tax charge of about $1.18 billion.

The purchase price of $960 million (650 million pounds sterling) from American Electric Power
AEP, +0.54%
is about half of the $1.9 billion (1.3 billion pounds sterling) Edison Mission Energy paid to acquire the plants in 1999.

"This investment has been a major disappointment for EME," EME's chief executive officer Al Fohrer said in a statement. "It is time to sell the plants, reduce our debt and eliminate the drag on our financial performance," he said.

Shares of Edison fell by 41 cents to $15.52, while AEP eased by 88 cents to close at $45.87.

Fohrer noted that although the sale of the plants will result in the one-time loss, "their disposition actually will result in an improvement in our credit quality and earnings potential."

American Electric Power said the transaction will be immediately accretive to its earnings by 6 cents per share in 2002.

AEP's purchase equates to about $200 per kilowatt for the assets, which is an "attractive price based on current market conditions in the U.K., said Hank Jones, senior vice president with AEP unit AEP Energy Services.

EME also said Monday that it has entered into contracts for the sale of seven interests in U.S. plants, following its announced policy to dispose of certain non-core U.S. assets. The sales are above book value and will generate net proceeds of about $460 million for the company, Fohrer said.

On Friday, a federal court judge approved a settlement plan between California power regulators and Edison International's cash-strapped Southern California Edison utility that would help return the utility to solvency. See Friday's Energy Watch.

Enron sells utility for $1.9 billion

Enron, the Houston energy company that thrives on an asset-light strategy, said Monday that it would sell its Portland General Electric utility to NW Natural Gas for $1.9 billion, including cash and stock.

Expected to close by the fourth quarter of 2002, the deal is subject to regulatory review. The purchase price includes $1.55 billion in cash, $200 million in NW Natural preferred stock, $50 million in NW Natural common stock, and the assumption of Enron's
ENE, +1.58%
$75 million balance on its customer benefits obligation.

In addition to the purchase price, NW Natural
NWN, -0.25%
will assume approximately $1.1 billion in Portland General debt and preferred stock.

Reliant spokesman Richard Wheatley said FERC hasn't issued any actual numbers on the refunds yet and that there was a "lack of clarity" in terms of what it needs to do its review of prices.

"What we will do in this case is go back and submit cost justification for additional review," Wheatley said, noting that the company saw a similar issue in the month of June and that the difference between Reliant's figure for the month and FERC's estimate of justifiable cost was about $22.

John Sousa, a spokesman for Dynegy said the term refund in this case is actually a "misnomer" and that FERC's order actually just requires the company to further justify its costs.

A June 19 order by FERC requires power providers to justify their costs if they were higher than the regulators' price cap for that time, he said, but Dynegy's filing for July was rejected by the commission based on a timing issue. FERC requires power sellers to justify their costs seven days after the trading month.

As result, Dynegy plans to file for rehearing, he said.

Power regulators have alleged that power-provider price gouging was a significant cause of California's energy crisis.

FERC was closed Monday for the Columbus Day holiday and was unreachable.

However, he maintained his target prices of $63 for Dynegy
DYN, +7.19%
and $33 for Xcel Energy
XEL, +0.84%
and said he still maintains "strong buy" ratings on each of the integrated power/natural gas companies he mentioned in his research note.

"We see the potential for material increases in earnings expectations for selected companies, Ellinghaus wrote, but "believe market uncertainty related to terrorism, potential military conflict, access to the capital markets, and a weakening economy will continue to affect near-term valuations."

UBS Warburg's Barry Abramson also reiterated his "overweighting" recommendation on the utility group Monday.

"For the near term, the unending series of negative economic reports makes it appear that utilities are one of the very few groups that should be able to report good earnings for the third quarter and the fourth quarter," he said in a research note.

Fuel-efficiency harder to come by

Americans enticed by carmakers' zero-percent financing incentives face a trade-off they may not have anticipated - higher fuel costs down the road.

Gasoline-saving cars are getting harder to come by, in large part due to buyers' continued appetite for sport utility vehicles, pick-up trucks, vans and minivans.

Average fuel use for new vehicles -- both sedans and light trucks -- has declined 1.9 miles per gallon since 1988, and today's average of 24 miles per gallon is at the lowest level since 1980, the U.S. Environmental Protection Agency said Thursday.

Crude prices rise; oil shares decline

Crude futures prices rose and oil-service shares fell Monday as traders assessed the effects of the U.S. air attacks in Afghanistan, keeping in mind that OPEC has not yet decided to cut production despite recent price declines.

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